St. Paul Teachers Retirement Fund Association Actuarial Valuation as of July 1, 2018

Transcription

1 This document is made available electronically by the Minnesota Legislative Reference Library as part of an ongoing digital archiving project. St. Paul Teachers Retirement Fund Association Actuarial Valuation as of July 1, 2018

2 December 7, 2018 Ms. Jill E. Schurtz, Executive Director 1619 Dayton Avenue, Room 309 St. Paul, MN Dear Ms. Schurtz: We are pleased to present the report of the actuarial valuation of the St. Paul Teachers Retirement Fund Association ( Fund ) as of July 1, This report provides, among other things, the required annual contribution rate of the Fund for the Plan Year commencing July 1, 2018 and ending on June 30, 2019, according to prescribed assumptions. The valuation was based upon data and information through June 30, 2018 furnished by the Fund staff, concerning Retirement Fund benefits, financial transactions, plan provisions and active members, terminated members, retirees and beneficiaries. Their efforts in furnishing the materials needed are gratefully acknowledged. We checked for internal and year-to-year consistency, but did not audit the data. We are not responsible for the accuracy or completeness of the information provided by the Fund. The report has been prepared at the request of the Fund s Board of Trustees in accordance with Section of the Minnesota Statutes as well as the Standards for Actuarial Work established by the State of Minnesota Legislative Commission on Pensions and Retirement. To the best of our knowledge, this report is complete and accurate, and has been prepared in accordance with prescribed assumptions and generally accepted actuarial principles and practices. This report is intended for use by the Fund and those determined or approved by the Fund s Board of Trustees. This report may be provided to parties other than the Fund only in its entirety and only with the permission of the Board. GRS is not responsible for unauthorized use of this report. The contribution rate in this report is determined using the actuarial assumptions and methods disclosed in Section 4 of this report. This report includes risk metrics on page 11, but does not include a robust assessment of the risks of future experience not meeting the actuarial assumptions. Additional assessment of risks was outside the scope of this assignment.

3 Ms. Jill E. Schurtz December 7, 2018 Page 2 This valuation assumed the continuing ability of the plan sponsor to make the contributions necessary to fund this plan. A determination regarding whether or not the plan sponsor is actually able to do so is outside our scope of expertise and was not performed. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan s funded status); and changes in plan provisions or applicable law. Due to the limited scope of our assignment, we did not perform an analysis of the potential range of such future measurements. This report should not be relied on for any purpose other than the purpose described in this report. Determinations of financial results associated with the benefits described in this report in a manner other than the intended purpose may produce significantly different results. Actuarial assumptions, including discount rates, mortality tables and others identified in this report, are prescribed by Minnesota Statutes Section , the Legislative Commission on Pensions and Retirement (LCPR), and the Board of Trustees. These parties are responsible for selecting the plan s funding policy, actuarial valuation methods, asset valuation methods, and assumptions. The policies, methods and assumptions used in this valuation are those that have been so prescribed and are described in the Actuarial Basis of this report. The Fund is solely responsible for communicating to GRS any changes required thereto. This report has been prepared by actuaries who have substantial experience valuing public employee retirement systems. Bonita J. Wurst and James D. Anderson are Members of the American Academy of Actuaries (MAAA) and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained herein. The signing actuaries are independent of the plan sponsor. We are not aware of any relationship that would impair the objectivity of our work. We will be pleased to review this report with you at your convenience. Respectfully submitted, Bonita J. Wurst, ASA, EA, FCA, MAAA James D. Anderson, FSA, EA, FCA, MAAA BJW/JDA:bd

4 Other Observations General Implications of Contribution Allocation Procedure or Funding Policy on Future Expected Plan Contributions and Funded Status Given the plan s contribution allocation procedure, if there are no changes in benefits or contributions and all actuarial assumptions are met (including the assumption of the plan earning 7.5%), it is expected that: (1) The normal cost of the plan is expected to remain approximately level as a percent of pay, (2) The funded status of the plan is expected to gradually improve and is expected to be 100% funded within the next 30 years, and (3) The unfunded liability will grow initially as a dollar amount before beginning to decline. Limitations of Funded Status Measurements Unless otherwise indicated, a funded status measurement presented in this report is based upon the actuarial accrued liability and the actuarial value of assets. Unless otherwise indicated, with regard to any funded status measurements presented in this report: (1) The measurement is inappropriate for assessing the sufficiency of plan assets to cover the estimated cost of settling the plan s benefit obligations; in other words, of transferring the obligations to an unrelated third party in an arm s length market value type transaction. (2) The measurement is dependent upon the actuarial cost method which, in combination with the plan s amortization policy, affects the timing and amounts of future contributions. The amounts of future contributions will most certainly differ from those assumed in this report due to future actual experience differing from assumed experience based upon the actuarial assumptions. A funded status measurement in this report of 100% is not synonymous with no required future contributions. If the funded status were 100%, the plan would still require future normal cost contributions (i.e., contributions to cover the cost of the active membership accruing an additional year of service credit). (3) The measurement would produce a different result if the market value of assets were used instead of the actuarial value of assets.

5 Table of Contents Summary of Valuation Results 1-11 Section 1 Asset Information Assets of the Plan 12 Table 1 Accounting Balance Sheet 13 Table 2 Changes in Assets Available for Benefits 14 Section 2 Total Membership Data Table 3 Active Members 15 Table 4 Service Retirements 16 Table 5 Disability Retirements 17 Table 6 Survivors 18 Table 7 Reconciliation of Members 19 Section 3 Funding Status Table 8 Actuarial Balance Sheet 20 Table 9 Determination of Unfunded Actuarial Accrued Liability (UAAL) and Supplemental Contribution Rate 21 Table 10 Changes in Unfunded Actuarial Accrued Liability (UAAL) 22 Table 11 Determination of Contribution Sufficiency 23 Section 4 Actuarial Methods and Assumptions Table 12 Summary of Actuarial Methods and Assumptions i-

6 Table of Contents (Concluded) Section 5 Basic Plan Membership Data Table 3A Active Members 32 Table 4A Service Retirements 33 Table 5A Disability Retirements 34 Table 6A Survivors 35 Funding Status Table 11A Determination of Contribution Sufficiency 36 Plan Provisions Summary of Benefit Provisions for Basic Members Section 6 Coordinated Plan Membership Data Table 3B Active Members 42 Table 4B Service Retirements 43 Table 5B Disability Retirements 44 Table 6B Survivors 45 Funding Status Table 11B Determination of Contribution Sufficiency 46 Summary of Benefit Provisions for Coordinated Members Section 7 Additional Disclosures ii-

7 Summary of Valuation Results This report sets forth the results of the actuarial valuation of the St. Paul Teachers Retirement Fund Association ( Fund ) as of July 1, The purposes of this valuation are: 1. To develop the Actuarially Determined Contribution (ADC) rates. 2. To compare the ADC rates with the current funding policy in place. 3. To review the funding status of the Fund. The funding status, in basic terms, is a comparison of the Fund s liabilities to assets expressed as either an unfunded liability (i.e., the difference between the assets and liabilities) or as a ratio of assets to liabilities. This comparison can be measured in various ways. Fund liabilities are dependent on the actuarial assumptions and actuarial cost method. Fund assets can be measured at market value, book value, or some variation to smooth the fluctuations that invariably occur from year to year. The Actuarial Value of Assets is determined from market value with investment gains and losses smoothed over a five-year period Omnibus Pension and Retirement Bill On May 31, 2018, the 2018 Omnibus Pension and Retirement Bill was signed into law. The new law implemented significant changes in benefits, contributions, and assumptions that are reflected in this report. The assumption changes were a result of the 2018 experience study for the period July 1, 2011 to June 30, As a result of this legislation, this fund is now expected to achieve full funding within the next 30 years if all assumptions are achieved. Contribution Sufficiency/(Deficiency) The required contribution rate (as defined in Section 356 of Minnesota Statutes) decreased slightly, from 22.16% of pay for the fiscal year ending June 30, 2018, to 21.54% of pay for the fiscal year ending June 30, The statutory contribution rate increased significantly, from 21.64% of payroll to 24.23% of payroll. The contribution sufficiency/ (deficiency) improved from a deficiency of (0.52%) of pay as of July 1, 2017 to a sufficiency of 2.69% of pay. On a market value of assets basis, statutory contributions are sufficient by 2.75% of pay. The contribution sufficiency referenced above is based on a current snapshot of statutory contributions for the fiscal year ending June 30, Additional contribution increases will be phased in over the next five years, ultimately increasing the statutory contribution rate (and the contribution sufficiency) by an additional 1.91% of pay. Assets and Liabilities On an actuarial value of assets basis, the funding ratio decreased slightly, from 64.45% at July 1, 2017, to 63.70% at July 1, Total actuarial liabilities increased from $1,611.2 million to $1,676.2 million, primarily due to the initial impact of significant assumption changes (offset by savings due to benefit changes). As shown in the table on the following page, on a market value of assets basis, the funding ratio dropped slightly, from 64.07% at July 1, 2017, to 63.87% at July 1,

8 Summary of Valuation Results Market Value Compared to Actuarial Value of Assets A 5-year smoothed value of assets (actuarial value of assets), used to determine both the funded status and required contribution level, reduces the volatility of the valuation results. As of July 1, 2018, the actuarial value of assets was 99.7% of market value. The following table shows the July 1, 2018 valuation results, on both a market value and smoothed actuarial value basis: Results as of July 1, 2018 Market Value of Assets Actuarial Value of Assets Actuarial Accrued Liability $1,676.2 million $1,676.2 million Value of Assets $1,070.6 million $1,067.7 million Unfunded Actuarial Accrued Liability $ million $ million Funded Ratio 63.87% 63.70% Statutory Contribution Rate 24.23% of pay 24.23% of pay Required Contribution Rate 21.48% of pay 21.54% of pay Sufficiency 2.75% of pay 2.69% of pay Changes Reflected in the Valuation Assumption and Method Changes As a result of the 2018 Omnibus Pension and Retirement Bill, which implemented recommendations from the 2018 experience study for the period July 1, 2011 to June 30, 2016, the following assumption and method changes are reflected in this report: The assumed investment return was lowered from 8.0% to 7.5%. Assumed wage inflation decreased from 4.0% to 3.0%. Salary increase rates were updated from an age based table with a service based component during the first fifteen years, to a service-based table of rates. Retirement, withdrawal, and disability rates were adjusted to better fit observed experience. The mortality table was updated from the RP 2000 Mortality Table (with adjustments) projected with Scale AA to 2020, to the RP 2014 Mortality Table, with white collar adjustment, set back 2 years for females, projected with Scale MP 2017 from The statutory amortization period was changed from June 30, 2042 to June 30, The net impact of the assumption and method changes described above was to increase the actuarial accrued liability $118.6 million and increase the required contribution by 1.96% of pay. The net required contribution increase resulted from an increase of 3.60% of pay attributable to assumption changes, which was partially offset by the decrease of 1.64% of pay attributable to the extension in the amortization date. -2-

9 Summary of Valuation Results Benefit Changes The 2018 Omnibus Pension and Retirement Bill included a number of changes to benefits that are reflected in this report: Lower early retirement factors for most members that will be phased in over a sixty-month period starting July 1, The refund interest rate on member contributions decreased from 4.0% to 3.0% prospectively, beginning July 1, Deferred augmentation was prospectively changed to 0.00%, effective July 1, Post retirement benefit increases were changed from 1.0% per year with a provision to increase to 2.0% if the funding ratio reaches 80% for two consecutive years or 2.5% if the funding ratio reaches 90% for two consecutive years, to 0.0% for January 1, 2019 and 2020 and 1.0% thereafter. For most retirements on or after July 1, 2024, the first benefit increase is delayed until the retiree reaches Normal Retirement Age. The benefit changes described above decreased the actuarial accrued liability $74.4 million and decreased the required contribution by 2.55% of pay. Contribution Changes Many changes to contributions were included in the legislation and are also reflected in this report: Coordinated member contributions will increase from 7.50% of pay to 7.75% of pay, effective July 1, Coordinated employer regular contributions will increase from 6.50% of pay to 9.00% of pay over six years, beginning July 1, Basic member contributions will increase from 10.00% of pay to 10.25% of pay, effective July 1, Basic employer regular contributions will increase from 10.00% of pay to 12.50% of pay over six years, beginning July 1, Additional supplemental contributions of $5,000,000 will be made by the State of Minnesota annually beginning October 1, The additional contributions increased the contribution sufficiency an additional 2.63% of pay. This is based on a current snapshot of statutory contributions for the fiscal year ending June 30, Additional contribution increases will be phased in after June 30, 2019, ultimately increasing the statutory contribution rate (and the contribution sufficiency) by an additional 1.91% of pay. -3-

10 Summary of Valuation Results Effects of Changes (Actuarial Value of Assets Basis) The combined impact of the changes described above was to increase the accrued liability by $44.2 million, and decrease the contribution deficiency by 3.22% of pay, as follows: Benefit Changes Contribution Changes Assumption Changes Amortization Period Extension Contribution Deficiency (% of Pay) (2.55)% (2.63)% 3.60% (1.64)% Actuarial Accrued Liability ($millions) $ (74.4) $ - $ $ - Additional detail regarding the impact of plan and assumption changes is summarized in the following table. Prior to Changes Results as of July 1, 2018 ($000s) Reflecting Plan Changes Reflecting Plan and Assumption Changes Reflecting Plan, Assumption and Amortization Changes A. FUNDING RATIOS 1. Accrued Liability Funding Ratio a. Current Assets $ 1,067,675 $ 1,067,675 $ 1,067,675 $ 1,067,675 b. Actuarial Accrued Liability 1,632,008 1,557,632 1,676,193 1,676,193 c. Funding Ratio 65.42% 68.54% 63.70% 63.70% 2. Projected Benefit Funding Ratio a. Current and Expected Future Assets $ 1,769,613 $ 2,002,512 $ 1,941,856 $ 2,004,176 b. Current and Expected Future Benefit Obligations 1,870,428 1,769,775 1,869,580 1,869,580 c. Funding Ratio 94.61% % % % B. REQUIRED CONTRIBUTIONS - CHAPTER Normal Cost 8.95% 8.10% 8.26% 8.26% 2. Supplemental Contribution Amortization 12.90% 11.20% 14.64% 13.00% 3. Allowance for Administrative Expenses 0.28% 0.28% 0.28% 0.28% 4. Total 22.13% 19.58% 23.18% 21.54% Participants Active membership increased 0.8% during fiscal year 2018 from 3,550 to 3,577 (figures include members on leave of absence). Total participants receiving benefits under the Fund, including disabled retirees, beneficiaries, and alternate payees, increased 1.6% during fiscal year 2018 from 3,851 to 3,914. Total expenditures for these benefits increased from $112.8 million to $115.3 million during fiscal year 2018, or 2.2%. Asset Valuation Method The method used to develop the Fund s Actuarial Value of Assets, as set out in the LCPR Standards for Actuarial Work, is as follows: In years when Fund assets earn above the assumed rate (i.e., experience gain) or below the assumed rate (i.e., experience loss) the gain (or loss) will be recognized over five years. This approach both removes volatility of the Fund s level of required contributions and ensures the Fund s assets will track the market value of assets. -4-

11 Summary of Valuation Results Experience Analysis The experience analysis provides a comparison of actual experience to projected experience based on the actuarial assumptions over the past year. Overall, the Fund had an experience gain of $19.4 million. In general, salary increases were significantly smaller than predicted under the valuation assumption and produced an actuarial gain of $15 million. Additionally, demographic experience resulted in an experience loss of $0.8 million. The Fund also had an experience gain due to investments. The investment return on a market value of assets basis was 9.75% (net of fees) for the year ended June 30, 2018, greater than the 8.00% assumption. (Note that this assumption was changed to 7.50% for the year ending June 30, 2019.) However, only 20% of this asset gain was recognized in the actuarial value of assets. Investment gains from previous years were recognized this year and resulted in a gain of $5.2 million on the actuarial value of assets. The investment return on an actuarial value of assets basis was 8.5% for the year ended June 30, The changes in unfunded actuarial accrued liabilities are shown in Table 10 in Section

12 Summary of Valuation Results Sensitivity Tests During the 2017 legislative session, the Legislative Commission on Pensions and Retirement (LCPR) enacted a new sensitivity disclosure requirement for the Fund s valuations. Per the LCPR s requirement, we have calculated the liabilities associated with the following scenarios: 1) 6.5% interest rate assumption 2) 8.5% interest rate assumption In each case, all other assumptions were unchanged from those used to develop the final valuation results in this report. Note that we believe the 8.5% interest rate assumption would not comply with Actuarial Standards of Practice. Final Valuation Final Valuation Assumptions 6.5% Interest 8.5% Interest Assumptions Normal Cost Rate, % of Pay 8.2% 10.1% 6.9% Amortization of Unfunded Accrued Liability, % of Pay 13.0% 15.4% 10.5% Expenses (% of Pay) 0.3% 0.3% 0.3% Total Required Contribution, % of Pay 21.5% 25.8% 17.7% Contribution Sufficiency/(Deficiency), % of Pay 2.7 % (1.6)% 6.5 % Accrued Liability Funding Ratio (AVA basis) 63.7% 56.9% 70.7% Actuarial Accrued Liability (in millions) $1,676.2 $1,875.7 $1,511.0 Unfunded Accrued Liability (in millions) $ $ $

13 Summary of Valuation Results (Dollars in Thousands) July 1, 2017 July 1, 2018 Valuation Valuation A. CONTRIBUTIONS % OF PAYROLL (Table 11) 1. Statutory Contributions - Chapter 354A 21.64% 24.23% 2. Required Contributions - Chapter % 21.54% 3. Sufficiency / (Deficiency) (0.52%) 2.69% B. FUNDING RATIOS 1. Accrued Liability Funding Ratio a Current Assets (Table 1) $ 1,038,467 $ 1,067,675 b. Actuarial Accrued Liability (Table 9) 1,611,208 1,676,193 c. Funding Ratio 64.45% 63.70% 2. Projected Benefit Funding Ratio (Table 8) a. Current and Expected Future Assets $ 1,773,650 $ 2,004,176 b. Current and Expected Future Benefit Obligations 1,847,501 1,869,580 c. Funding Ratio 96.00% % C. PLAN PARTICIPANTS 1. Active Members a. Number (Table 3) 3,409 3,445 b. Projected Annual Earnings $ 280,785 $ 281,782 c. Average Annual Earnings (Projected dollars) $ 78,060 $ 77,704 d. Average Age e. Average Service f. Members on Leave of Absence Others a. Service Retirements (Table 4) 3,478 3,547 b. Disability Retirements (Table 5) c. Survivors (Table 6) d. Deferred Retirements (Table 7) 2,034 2,031 e. Terminated Other Non-Vested (Table 7) 2,945 3,014 f. Total - Others 8,830 8, Grand Total (1.a + 1.f + 2.f) 12,380 12,536-7-

14 Summary of Valuation Results Risks Associated with Measuring the Accrued Liability and Actuarially Determined Contribution The determination of the accrued liability and the actuarially determined contribution requires the use of assumptions regarding future economic and demographic experience. Risk measures, as illustrated in this report, are intended to aid in the understanding of the effects of future experience differing from the assumptions used in the course of the actuarial valuation. Risk measures may also help with illustrating the potential volatility in the accrued liability and the actuarially determined contribution that result from the differences between actual experience and the actuarial assumptions. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions due to changing conditions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period, or additional cost or contribution requirements based on the Plan s funded status); and changes in plan provisions or applicable law. The scope of an actuarial valuation does not include an analysis of the potential range of such future measurements. Examples of risk that may reasonably be anticipated to significantly affect the plan s future financial condition include: 1. Investment risk actual investment returns may differ from the expected returns; 2. Asset/Liability mismatch changes in asset values may not match changes in liabilities, thereby altering the gap between the accrued liability and assets and consequently altering the funded status and contribution requirements; 3. Contribution risk actual contributions may differ from expected future contributions. For example, actual contributions may not be made in accordance with the plan s funding policy or material changes may occur in the anticipated number of covered employees, covered payroll, or other relevant contribution base; 4. Salary and Payroll risk actual salaries and total payroll may differ from expected, resulting in actual future accrued liability and contributions differing from expected; 5. Longevity risk members may live longer or shorter than expected and receive pensions for a period of time other than assumed; 6. Other demographic risks members may terminate, retire or become disabled at times or with benefits other than assumed resulting in actual future accrued liability and contributions differing from expected. The effects of certain trends in experience can generally be anticipated. For example if the investment return since the most recent actuarial valuation is less (or more) than the assumed rate, the cost of the plan can be expected to increase (or decrease). Likewise if longevity is improving (or worsening), increases (or decreases) in cost can be anticipated. -8-

15 Summary of Valuation Results The Required Contribution rate shown on page 7 may be considered as a minimum contribution rate that complies with Minnesota Statutes and the requirements of the Standards for Actuarial work published by the LCPR. The timely receipt of the actuarially determined contributions is critical to support the financial health of the plan. Users of this report should be aware that contributions made at the actuarially determined rate do not necessarily guarantee benefit security. PLAN MATURITY MEASURES Risks facing a pension plan evolve over time. A young plan with virtually no investments and paying few benefits may experience little investment risk. An older plan with a large number of members in pay status and a significant trust may be much more exposed to investment risk. Generally accepted plan maturity measures include the following. Additional maturity measures are shown on page Ratio of the market value of assets to total payroll Ratio of actuarial accrued liability to payroll Ratio of actives to retirees and beneficiaries Ratio of non-investment cash flow to market value of assets* -5.4% -5.4% *cash flow ratio does not reflect contribution increases to be phased in over the next five years RATIO OF MARKET VALUE OF ASSETS TO PAYROLL The relationship between assets and payroll is a useful indicator of the potential volatility of contributions. For example, if the market value of assets is 2.0 times the payroll, a return on assets 5% different than assumed would equal 10% of payroll. A higher (lower) or increasing (decreasing) level of this maturity measure generally indicates a higher (lower) or increasing (decreasing) volatility in plan sponsor contributions as a percentage of payroll. RATIO OF ACTUARIAL ACCRUED LIABILITY TO PAYROLL The relationship between actuarial accrued liability and payroll is a useful indicator of the potential volatility of contributions for a fully funded plan. A funding policy that targets a funded ratio of 100% is expected to result in the ratio of assets to payroll and the ratio of liability to payroll converging over time. The ratio of liability to payroll may also be used as a measure of sensitivity of the liability itself. For example, if the actuarial accrued liability is 2.5 times the payroll, a change in liability 2% other than assumed would equal 5% of payroll. A higher (lower) or increasing (decreasing) level of this maturity measure generally indicates a higher (lower) or increasing (decreasing) volatility in liability (and also plan sponsor contributions) as a percentage of payroll. -9-

16 Summary of Valuation Results RATIO OF ACTIVES TO RETIREES AND BENEFICIARIES A young plan with many active members and few retirees will have a high ratio of active to retirees. A mature open plan may have close to the same number of actives to retirees resulting in a ratio near 1.0. A very mature or closed plan may have significantly more retirees than actives resulting in a ratio below 1.0. RATIO OF NON-INVESTMENT CASH FLOW TO MARKET VALUE OF ASSETS A positive non-investment cash flow means contributions exceed benefits and expenses. A negative noninvestment cash flow means existing funds are being used to make payments. A certain amount of negative net cash flow is generally expected to occur when benefits are prefunded through a qualified trust. Large negative net cash flows as a percent of assets may indicate a very mature plan or a need for additional contributions. The cash flow ratio for this fund will improve as future contribution increases are phased in over the next five years. ADDITIONAL RISK ASSESSMENT Additional risk assessment is outside the scope of the annual actuarial valuation. Additional assessment may include scenario tests, sensitivity tests, stochastic modeling, stress tests, and a comparison of the present value of accrued benefits at low-risk discount rates with the actuarial accrued liability. -10-

17 Summary of Valuation Results Risk Measures Summary Valuation Date (July 1) (1) (2) (3) (4) (5) (6) (7) (8) (9) Accrued Liabilities (AAL) Market Value of Assets Market Value Unfunded AAL (1) - (2) Market Value Funded Ratio (2) / (1) RetLiab/ AAL (6) / (1) AAL/ Payroll (1) / (4) Assets/ Payroll (2) / (4) Valuation Payroll Retiree Liabilities 2010 $1,471,630 $815,307 $656,323 $239, % $950, % 613.2% 339.7% ,389, , , , % 939, % 579.7% 396.3% ,471, , , , % 979, % 615.4% 368.9% ,467, , , , % 988, % 593.0% 377.1% ,533,603 1,045, , , % 1,015, % 590.4% 402.5% ,596,770 1,014, , , % 1,053, % 605.2% 384.7% ,592, , , , % 1,052, % 615.4% 370.8% ,611,208 1,032, , , % 1,068, % 609.5% 390.5% ,676,193 1,070, , , % 1,129, % 637.0% 406.9% Valuation Date (July 1) (10) (11) (12) (13) (14) (15) (16) Non- Std Dev Unfunded / Investment NICF/ Portfolio % of Pay Payroll Cash Flow Assets Market Rate 5-Year StdDev (9) x (10) (3) / (4) (NICF) (13) / (2) of Return Average 2010 $(58,006) 13.1% % (60,117) (6.3%) 25.0% % (64,220) (7.3%) (0.2%) % (63,553) (6.8%) 13.5% % (55,823) (5.3%) 18.4% 13.7% % (56,223) (5.5%) 2.7% 11.5% % 49.7% 244.6% (56,778) (5.9%) 0.3% 6.7% % 52.3% 219.0% (56,136) (5.4%) 13.9% 9.5% % 55.7% 230.2% (57,563) (5.4%) 9.8% 8.8% Notes pertaining to numbered columns: (5) The Funded ratio is the most widely known measure of a plan's financial strength, but the trend in the funded ratio is much more important than the absolute ratio. The funded ratio should trend to 100%. As it approaches 100%, it is important to re-evaluate the level of investment risk in the portfolio and potentially to re-evaluate the assumed rate of return. (6) and (7) The ratio of Retiree liabilities to total accrued liabilities gives an indication of the maturity of the system. As the ratio increases, cash flow needs increase, and the liquidity needs of the portfolio change. A ratio on the order of 50% indicates a maturing system. (8) and (9) The ratios of liabilities and assets to payroll gives an indication of both maturity and volatility. Many systems have ratios between 500% and 700%. Ratios significantly above that range may indicate difficulty in supporting the benefit level as a level % of payroll. (10) and (11) The portfolio standard deviation measures the volatility of investment return. When multiplied by the ratio of assets to payroll it gives the effect of a one standard deviation asset move as a percent of payroll. This figure helps users understand the difficulty of dealing with investment volatility and the challenges volatility brings to sustainability. (12) The ratio of unfunded liability to payroll gives an indication of the plan sponsor's ability to actually pay off the unfunded liability. A ratio above approximately 300% or 400% may indicate difficulty in discharging the unfunded liability within a reasonable time frame. (13) and (14) The ratio of non-investment cash flow to assets is an important measure of sustainability. Negative ratios are common and expected for a maturing system. In the longer term, this ratio should be on the order of approximately -4%. A ratio that is significantly more negative than that for an extended period could be a leading indicator of potential exhaustion of assets. (15) and (16) Investment return is probably the largest single risk that most systems face. The year by year return and the 5-year geometric average give an indicator of the realism of the systems assumed return. Of course, past performance is not a guarantee of future results. -11-

18 SECTION 1 ASSET INFORMATION

19 Assets of the Plan The cost value of the plan assets decreased from $818.7 million as of June 30, 2017 to $816.5 million as of June 30, The market value of the plan assets increased from $1,032.2 million as of June 30, 2017 to $1,070.6 million as of June 30, The expected return on assets using the valuation investment return rate assumption of 8.0 percent was $80 million. (Note that this assumption was changed to 7.50% for the year ending June 30, 2019.) The actual plan experience showed a return on assets of $95.9 million. Twenty percent of the asset return above the expected $80 million is recognized as an actuarial gain in the development of the actuarial value of assets. The recognized gain from the current year, along with the portion of prior gains and losses recognized this year, results in an overall gain of $5.2 million on the actuarial value of assets. The 2017 and 2018 asset gains as well as the 2015 and 2016 asset losses (investment returns that fell above (gain) or below (loss) the expected return - amounts shown on the next page) will be recognized incrementally over the next four years. As of July 1, 2018, there are slightly more unrecognized asset gains than losses, and the Actuarial Value of Assets (AVA) is only slightly lower than the Market Value of Assets (MVA). Table 1 shows the composition of assets as of June 30, 2018 and the development of the actuarial value of assets as of June 30, Table 2 details the development of asset values during fiscal year

20 A. ASSETS Table 1 Accounting Balance Sheet as of June 30, 2018 (dollars in thousands) Market Value 1. Cash, Equivalents, Short-Term Securities $ 4,984 $ 4, Investments a. Fixed Income 172, ,023 b. Equity 666, ,622 c. Real Assets 70,887 47,402 d. Alternative 112,901 99,955 e. Cash and Cash Equivalents 40,953 40, Other Assets 2,766 2,766 B. TOTAL ASSETS $ 1,071,794 $ 817,714 C. AMOUNTS CURRENTLY PAYABLE $ 1,222 $ 1,222 D. ASSETS AVAILABLE FOR BENEFITS 1. Member Reserves $ 199,900 $ 199, Employer Reserves 870, , Total Assets Available for Benefits $ 1,070,572 $ 816,492 E. TOTAL AMOUNTS CURRENTLY PAYABLE AND ASSETS AVAILABLE FOR BENEFITS $ 1,071,794 $ 817,714 F. DETERMINATION OF ACTUARIAL VALUE OF ASSETS 1. Market Value of Assets Available for Benefits (D.3) $ 1,070, Unrecognized Asset Returns a. June 30, 2018 $ 15,610 b. June 30, ,191 c. June 30, 2016 (77,451) d. June 30, 2015 (55,629) 3. UAR Adjustment:.80 * 2(a) +.60 * 2(b) +.40 * 2(c) +.20 * 2(d) 2, Actuarial Value of Assets: (F.1 - F.3) $ 1,067,675 DERIVATION OF OTHER ASSETS * Market Value Accounts Receivable Employer Contribution $ 458 Employee Contribution 287 Service Purchases Receivable - Pensions Receivable 31 State Contributions 838 Real Estate Income Receivable 85 Commission Recapture Receivable 2 Interest Receivable 67 Dividend Receivable 415 Misc. Receivable - Escrow Funds receivable - Sale of Securities 549 Total Accounts Receivable $ 2,731 Fixed Assets 35 Total Other Assets $ 2,766 *Numbers may not add due to rounding. Cost Value -13-

21 Table 2 Change(s) in Assets Available for Benefits as of June 30, 2018 (dollars in thousands) Market Value Cost Value A. ASSETS AVAILABLE AT BEGINNING OF PERIOD $ 1,032,249 $ 818,711 B. OPERATING REVENUES 1. Member Contributions $ 20,112 $ 20, Employer Contributions 28,199 28, Supplemental Contributions 10,665 10, Reemployed Annuitant Employer Contributions Investment Income 12,112 12, Investment Expenses (4,356) (4,356) 7. Net Realized Gain / (Loss) 47,588 47, Other Net Change in Unrealized Gain / (Loss) 40, Total Operating Revenue $ 155,207 $ 114,665 C. OPERATING EXPENSES 1. Service Retirements $ 103,244 $ 103, Disability Benefits Survivor Benefits 11,565 11, Refunds Administrative Expenses Total Operating Expenses $ 116,884 $ 116,884 D. OTHER CHANGES IN RESERVES $ 0 $ 0 E. ASSETS AVAILABLE AT END OF PERIOD $ 1,070,572 $ 816,492 F. DETERMINATION OF CURRENT YEAR UNRECOGNIZED ASSET RETURN 1. Average Balance (a) Assets available at BOY $ 1,032,249 (b) Assets available at EOY 1,070,572 (c) Average balance {[(a) + (b) - Net Investment Income] / 2} $ 1,003,468 {Net investment income: B.5+B.6+B.7+B.9} 2. Expected Return:.080 * F.1 80, Actual Return 95, Current Year Gross Asset Gain/(Loss): F.3 - F.2 $ 15,

22 SECTION 2 TOTAL MEMBERSHIP DATA

23 Table 3 Active Members as of June 30, 2018* Years of Service Age < ALL < ALL ,577 AVERAGE ANNUAL EARNINGS Years of Service Age < ALL < 25 37, , ,959 61, , ,737 67,670 76, , ,418 72,706 80,282 84,657 81, , ,852 73,610 82,368 82,987 88, , ,749 78,554 79,958 87,360 91,944 96, , ,792 76,232 82,166 85,102 91,910 95,282 88, ,371 84, ,320 78,033 72,439 87,656 90,322 96,057 99, ,203 85, ,530 59,788 73,947 79,034 88,488 91,084 93, ,316 82, ,065 31,978 75,867 65,230 87, ,377 73, ,358 64,154 ALL 48,783 71,091 79,819 84,465 91,031 94,984 95, ,165 74,004 Prior Fiscal Year Earnings (IN THOUSANDS) by Years of Service < & Over ALL ALL 47,905 45,641 36,796 46,287 48,609 24,411 12,060 3, ,713 *Including those on leave of absence; pay annualized for new hires. -15-

24 Table 4 Service Retirements as of June 30, 2018 Years Retired Age < & Over ALL < ALL ,547 AVERAGE ANNUAL BENEFIT Years Retired Age < & Over ALL < , , , , , , ,455 1, , ,759 24, , ,704 24,920 32,829 5, , ,183 25,210 34,177 33,820 51, , ,054 20,617 25,667 35,172 35,988 29, , ,865 5,741 23,001 37,009 43,197 31, , ,477 3,549 9,815 50,130 36,995 30, , ,408 36,804 40,038 25,328 29,128 35,097 30,761 ALL 21,307 24,611 31,755 34,675 42,905 35,578 27,684 29,128 35,097 29,416 Total Annual Benefit (IN THOUSANDS) by Years RETIRED < & Over ALL ALL 17,770 19,886 22,738 18,932 16,906 5,337 2, ,

25 Table 5 Disability Retirements as of June 30, 2018* Years Disabled Age < & Over ALL < ALL AVERAGE ANNUAL BENEFIT Years Disabled Age < & Over ALL <45 0 3, , , , ,221 17, , ,766 18,905 1,377 25,166 5, , ,710 13, , , , , ALL 27,236 17,838 5,162 26,724 5, ,800 Total Annual Benefit (IN THOUSANDS) by Years DISABLED < & Over ALL ALL * Disability benefits convert to normal retirement benefits at normal retirement age (which occurs between ages 65 and 66). -17-

26 Table 6 Survivors as of June 30, 2018 Years Since Member Death Age < & Over ALL < ALL AVERAGE ANNUAL BENEFIT Years Since Member Death Age < & Over ALL <45 7,225 7, , , , , , , , ,440 6,889 18,725 8,330 49, , ,721 23,137 33,748 44, ,152 28, ,350 30, ,616 25,708 46,419 22,658 30,930 24, , , , ,875 33,116 43,008 37,965 22,952 18, , , ,810 23,739 40,711 38,894 38,063 24, , , , ,536 50,463 30,291 24,318 22,990 40, , ,293 54,556 35,519 28,528 33,524 33,517 ALL 36,269 13,379 22,307 25,173 39,407 42,492 32,523 25,882 26,203 33,831 Total Annual Benefit (IN THOUSANDS) by Years Since Member Death < & Over ALL ALL 3, ,576 2,422 1, ,

27 Table 7 Reconciliation of Members as of June 30, 2018 Active Leave of Vested Other Retired Survivors and Alternate Participants Absence Terminated Non-Vested Participants Disableds Beneficiaries Payees 2 Total A. Number as of June 30, , ,034 2,945 3, ,380 B. Additions C. Deletions 1. Retirements (78) (3) (53) (134) 2. Disability Died with Beneficiary (1) (1) (1) - (19) (22) 4. Died without Beneficiary (56) (1) (20) - (77) 5. Terminated - Deferred (91) (16) (107) 6. Terminated - Not Vested (142) (142) 7. Refunds (8) (4) (34) (77) (123) 8. Rehired as Active 124 (55) (21) (48) Leave of Absence (65) Repayment of Refund Expired Benefits (3) - (3) 12. Disability to Retirement (4) - - (4) D. Data Adjustments 1-1 (1) (1) 1 53 E. Total on June 30, , ,031 3,014 3, ,536 1 Includes members not valued in prior valuation who repaid refunds or otherwise restored prior service. 2 Includes alternate payees of retired participants (47), disabled participants (1), and survivors (2). -19-

28 SECTION 3 FUNDING STATUS

29 Table 8 Actuarial Balance Sheet as of July 1, 2018 (dollars in thousands) A. CURRENT ASSETS (TABLE 1; Line F.4) $ 1,067,675 B. EXPECTED FUTURE ASSETS 1. Present Value of Expected Future Statutory Supplemental Contributions* $ 743, Present Value of Future Normal Costs 193, Total Expected Future Assets $ 936,501 C. TOTAL CURRENT AND EXPECTED FUTURE ASSETS $ 2,004,176 D. TOTAL CURRENT AND EXPECTED FUTURE BENEFIT OBLIGATIONS $ 1,869,580 E. CURRENT AND FUTURE UNFUNDED ACTUARIAL LIABILITY (D - C) $ (134,596) * Includes the effect of scheduled employee and employer contribution increases and supplemental state contributions. -20-

30 Table 9 Determination of Unfunded Actuarial Accrued Liability (UAAL) and Supplemental Contribution Rate as of July 1, 2018 (dollars in thousands) Actuarial Actuarial Present Value Present Value Actuarial of Projected of Future Accrued Benefits Normal Costs Liability A. DETERMINATION OF ACTUARIAL ACCRUED LIABILITY (AAL) 1. Active Members* a. Retirement Benefits $ 592,898 $ 123,011 $ 469,887 b. Disability Benefits $ 14,405 $ 4,551 $ 9,854 c. Surviving Spouse and Child Benefits $ 5,964 $ 1,673 $ 4,291 d. Vested Withdrawals $ 42,349 $ 47,745 $ (5,396) e. Refund Liability Due to Death or Withdrawal $ 2,250 $ 16,407 $ (14,157) f. Total $ 657,866 $ 193,387 $ 464, Deferred Retirements $ 79,052 $ 0 $ 79, Former Members without Vested Rights $ 2,798 $ 0 $ 2, Annuitants $ 1,129,864 $ 0 $ 1,129, Total $ 1,869,580 $ 193,387 $ 1,676,193 B. DETERMINATION OF UNFUNDED ACTUARIAL ACCRUED LIABILITY (UAAL) 1. Actuarial Accrued Liability (A.5) $ 1,676, Current Assets (Table 1; Line F.4) $ 1,067, Unfunded Actuarial Accrued Liability (B.1 - B.2) $ 608,518 C. DETERMINATION OF SUPPLEMENTAL CONTRIBUTION RATE** 1. Present Value of Future Payrolls Through the Amortization Date of June 30, 2048*** $ 4,680, Supplemental Contribution Rate (B.3 / C.1) 13.00% * Includes members on leave of absence. ** The amortization of the unfunded actuarial accrued liability (UAAL) using the current amortization method results in initial payments less than the "interest only" payment on the UAAL. Payments less than the interest only amount will result in the UAAL increasing for an initial period of time. ***Calculated using 7.5% annual investment return rate. -21-

31 Table 10 Changes in Unfunded Actuarial Accrued Liability (UAAL) as of July 1, 2018 (dollars in thousands) A. UAAL AT BEGINNING OF YEAR $ 572,741 B. CHANGE DUE TO INTEREST REQUIREMENTS AND CURRENT RATE OF FUNDING 1. Normal Cost and Expenses $ 25, Contributions $ (59,321) 3. Interest $ 44, Total $ 11,033 C. EXPECTED UAAL AT END OF YEAR (A + B.4) $ 583,774 D. INCREASE / (DECREASE) DUE TO ACTUARIAL LOSSES / (GAINS) BECAUSE OF EXPERIENCE DEVIATIONS FROM EXPECTED 1. Age and Service Retirements $ 2, Disability Retirements (57) 3. Death-in-Service Benefits Withdrawals (3,835) 5. Salary Increases (14,984) 6. Investment Income (5,179) 7. Mortality of Annuitants (420) 8. Other Items 2, Total $ (19,441) E. UAAL AT END OF YEAR BEFORE PLAN AMENDMENTS AND CHANGES $ 564,333 IN ACTUARIAL ASSUMPTIONS (C + D.9) F. CHANGE IN UAAL DUE TO PLAN AMENDMENTS (74,376) G. CHANGE IN UAAL DUE TO CHANGES IN ACTUARIAL ASSUMPTIONS 118,561 H. UAAL AT END OF YEAR (E + F + G) $ 608,

32 Table 11 Determination of Contribution Sufficiency as of July 1, 2018 (dollars in thousands) Percent-of- Payroll Dollar Amount A. STATUTORY CONTRIBUTIONS - CHAPTER 354A 1. Employee Contributions 7.50% $ 21, Employer Contributions a. Regular 7.34% 20,688 b. Additional 3.84% 10, Supplemental Contribution a Legislation 0.30% 838 b Legislation 1.00% 2,827 c Legislation 2.48% 7,000 d Legislation 1.77% 5, Total 24.23% $ 68,311 B. REQUIRED CONTRIBUTIONS - CHAPTER Normal Cost a. Retirement Benefits 5.44% $ 15,330 b. Disability Benefits 0.18% 508 c. Surviving Spouse and Child Benefits 0.07% 197 d. Vested Withdrawals 1.90% 5,355 e. Refund Liability Due to Death or Withdrawal 0.67% 1,889 f. Total 8.26% $ 23, Supplemental Contribution Amortization 13.00% 36, Allowance for Administrative Expenses 0.28% Total 21.54% $ 60,700 C. CONTRIBUTION SUFFICIENCY / (DEFICIENCY) (A.4 - B.4) 2.69% 7,611 Projected Annual Payroll for Fiscal Year Beginning on the Valuation Date (determined according to requirements of the LCPR Standards for Actuarial Work): $ 281,

33 SECTION 4 ACTUARIAL METHODS AND ASSUMPTIONS

34 I. ACTUARIAL COST METHOD Table 12 Actuarial Methods and Assumptions as of July 1, 2018 An Actuarial Cost Method is a set of techniques used by the actuary to develop contribution levels under a retirement plan. The Actuarial Cost Method used in this valuation for all purposes is the Entry Age Actuarial Cost Method. Under this Method, a Normal Cost is developed by amortizing the actuarial value of benefits expected to be received by each active participant (as a level percentage of pay) over the total working lifetime of that participant, from hire to termination. Years of Service for valuation purposes was provided by the Retirement Fund. Age as of the valuation date was calculated based on the dates of birth provided by the Retirement Fund. Entry Age for valuation purposes was calculated as the age on the valuation date minus the years of service on the valuation date. To the extent that current assets and future Normal Costs do not support participants' expected future benefits, an Unfunded Actuarial Accrued liability ( UAAL ) develops. The UAAL is amortized over the closed statutory amortization period ending June 30, 2048 using level percent-of-payroll assuming payroll increases of 3.00% per annum. The total contribution developed under this method is the sum of the Normal Cost and the payment toward the UAAL. II. CURRENT ACTUARIAL ASSUMPTIONS Assumptions are based on an experience study for the five-year period of July 1, 2011 to June 30, 2016, as well as a legislated change to the investment return assumption effective July 1, Note that the significant plan changes reflected in this report may ultimately result in behavior changes not anticipated in the actuarial assumptions. A. Demographic Assumptions Mortality: 1. Healthy and Disabled Annuitant Mortality: a. Male: RP-2014 Healthy Annuitant Mortality Table for males adjusted for white collar and projected with Scale MP-2017 from 2006 b. Female: RP-2014 Healthy Annuitant Mortality Table for females adjusted for white collar and projected with Scale MP-2017 from 2006, set back 2 years 2. Employee Mortality: a. Male: RP-2014 Employee Mortality Table for males adjusted for white collar and projected with Scale MP-2017 from 2006 b. Female: RP-2014 Employee Mortality Table for females adjusted for white collar and projected with Scale MP-2017 from